Financing Social Security Conference hosted by DGVN and GTZ Social Security Systems in Developing and Newly Industrialised Countries: Utopia or Strategy for Keeping Peace and Fighting Poverty? 18-19 September 2007, Berlin Christina Behrendt Social Security Department,, Geneva
Structure of presentation 1. Introduction 2. Financing social security in a development context 3. Evidence from a set of ILO costing studies Cost of basic social protection package Domestic and external funding possibilities 4. Can low-income countries afford not to have social security?
2. Financing social security in a development context OECD countries: social protection expenditure between 10% and 30% of GDP Countries at the same level of economic development differ significantly in how much they spend on social protection There is no apparent link between economic performance and the size of the national social protection system Size of social protection systems is shaped mainly by prevailing political attitudes towards redistribution Affordability is a function of the societal willingness to finance social transfers through taxes and contributions
Current situation in many countries Limited coverage of formal social security schemes, as a consequence of small formal economy Large majority of labour force in informal economy are not or very poorly protected Widespread poverty Limited contributory capacity, yet some workers in the informal economy can contribute Erosion of traditional forms of protection Narrow tax base Governance problems Lack of trust in public institutions
Extension of coverage: existing programmes Social pensions, partly universal and partly means-tested: Botswana, Lesotho, Mauritius, Namibia, Nepal, South Africa, etc. Conditional cash transfers for children: Brazil, Mexico, etc. Targeted cash transfers: e.g. GTZ pilot in Zambia Micro-insurance programmes in health: Benin, Senegal, etc. Extension of coverage in formal social security systems: e.g. Social health insurance in Ghana (subsidies for the poor)
3. Evidence from ILO studies ILO costing studies on basic social protection package in low-income countries Seven countries in Africa (Pal et al. 2005) Five countries in Asia (Mizunoya et al. 2006) Different scenarios based on alternative assumptions Projections over next 30 years Related study on effects of cash transfers on poverty reduction Senegal and Tanzania (Gassmann and Behrendt 2006)
Assumptions Basic old age and invalidity pensions: Scenario I: Benefit of $0.5 PPP per day Scenario II: Benefit of 30% of GDP per capita Child benefits: Scenario I: Benefit of $0.25 PPP per day (half of pension), paid to all children up to the age of 14 Scenario II: Benefit of 15% of GDP per capita (half of pension), paid only to orphans up to the age of 14 Administration cost: 15% of benefit expenditure for universal cash benefits Essential health care: Annual per capita costs based on the Commission on Macroeconomics and Health estimates of US$ 34 by 2007 and US$ 38 by 2015
Cost of universal basic old age and disability pension (Scenario I: Benefit of $0.50 PPP per day) 1.2% 1.0% 2010 2020 2030 0.8% 0.6% 0.4% 0.2% 0.0% Bangladesh India Nepal Pakistan Viet Nam Burkina Faso Cameroon Ethiopia Guinea Kenya Senegal Tanzania Percent of GDP Asia Africa
Cost of universal basic old age and disability pension (Scenario II: Benefit of 30% of GDP per capita) 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 2010 2020 2030 0.2% 0.0% Bangladesh India Nepal Pakistan Viet Nam Burkina Faso Cameroon Ethiopia Guinea Kenya Senegal Tanzania Percent of GDP Asia Africa
Cost of universal child benefit for all children aged 0-14 (Scenario I: Benefit of $0.25 PPP per capita) 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2010 2020 2030 Bangladesh India Nepal Pakistan Viet Nam Burkina Faso Cameroon Ethiopia Guinea Kenya Senegal Tanzania Percent of GDP Asia Africa
Cost of universal child benefit for orphans aged 0-14 (Scenario II: Benefit of 15% of GDP per capita) 1.2% 1.0% 0.8% 0.6% 0.4% 2010 2020 2030 0.2% 0.0% Bangladesh India Nepal Pakistan Viet Nam Burkina Faso Cameroon Ethiopia Guinea Kenya Senegal Tanzania Percent of GDP Asia Africa
Cost of essential health care based on CMH estimates (Scenario I) 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 2010 2020 2030 Bangladesh India Nepal Pakistan Viet Nam Burkina Faso Cameroon Ethiopia Guinea Kenya Senegal Tanzania Percent of GDP Asia Africa
Cost of basic social protection package (Scenario I, in % of GDP) 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 2010 2020 2030 Bangladesh India Nepal Pakistan Viet Nam Burkina Faso Cameroon Ethiopia Guinea Kenya Senegal Percent of GDP Tanzania Asia Africa
Share of total costs covered by domestic financing (Scenario I, Option 1: share of budgets allocated to social protection kept constant at current level) Percent of total cost 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 2010 2020 2030 0.0% Bangladesh India Nepal Asia Pakistan Viet Nam Burkina Faso Cameroon Ethiopia Guinea Africa Kenya Senegal Tanzania
Share of total costs covered by domestic financing (Scenario I, Option 2: share of budgets allocated to social protection increased to 20% of government expenditure) 100.0% 90.0% Percent of total cost 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 2010 2020 2030 10.0% 0.0% Bangladesh India Nepal Pakistan Viet Nam Burkina Faso Cameroon Ethiopia Guinea Kenya Senegal Tanzania Asia Africa
4. Can low income countries afford not to provide social security? Investments in health care, education and properly designed cash transfers have positive economic and social effects in countries at any stage of development Needs and priorities of vulnerable groups well known Set of policy instruments to meet these needs and priorities available, including various cash transfers as well as access to health care and education Impact on reducing poverty and vulnerability, as shown by existing programmes and microsimulations
Estimated effect of cash transfers on reduction of poverty (headcount) in Senegal and Tanzania 25 Poverty rate (percent of the population) 20 15 10 5 Universal old age and disability pension Universal child benefit for school-age children (7-14) Simulated remaining poverty rate 0 Senegal Tanzania
Therefore... Social security not only desirable, effective and affordable but also administratively feasible Coordinated forward looking national social protection policy strategies should sequence implementation of various social programmes and policy instruments Solid costing and comprehensive social budgeting indispensable for policy planning Need to build capacities in coordinating government agencies, line ministries and then at the local level in the areas like: Social protection development, analysis and design Administration of social protection programmes
Social security is not a social cost but an affordable investment in: prevention/reduction of poverty and vulnerability quality of work and life social cohesion and peace nation building global security It is an investment in people and states
References Pal, K.; Behrendt, C.; Léger, F.; Cichon, M., and Hagemejer, K., 2005: Can Low Income Countries Afford Basic Social Protection? First Results of a Modelling Exercise, Issues in Social Protection Discussion Paper 13 (Geneva: ), http://www.ilo.org/public/english/protection/secsoc/downloads/policy/1023sp1.pdf Mizunoya, S.; Behrendt, C.; Pal, K., and Léger, F., 2006: Can Low Income Countries Afford Basic Social Protection? First Results of a Modelling Exercise for Five Asian Countries, Issues in Social Protection Discussion Paper 17 (Geneva: ), http://www3.ilo.org/public/english/protection/secsoc/downloads/1527sp1.pdf Gassmann, F. and Behrendt, C., 2006: Cash benefits in low-income countries: Simulating the effects on poverty reduction for Senegal and Tanzania, Issues in Social Protection Discussion Paper 15 (Geneva: ), http://www3.ilo.org/public/english/protection/secsoc/downloads/1515sp1.pdf More information available on ILO Social Security Department website http://www.ilo.org/public/english/protection/secsoc/